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Operator
And welcome to the CareDX, Inc. Second Quarter 2022 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ian Cooney, Vice President of Investor Relations. Please go ahead.
Ian Cooney
Good afternoon, and thank you for joining us today. Earlier today, CareDX released financial results for the quarter ended June 30th, 2022. The release is currently available on the company's website at www.caredx.com. Reg Cito, Chief Executive Officer, and Abhishek Jain, Interim Chief Financial Officer, will host this afternoon's call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, are examination of historical operating trends, expectations regarding coverage decisions, pricing and enrollment matters, and our future financial expectations and results are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that can cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list of descriptions of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. The information provided in this conference call speaks only to the live broadcast today, August 4th, 2022. CareDX claims any intention or obligation except as required by law to update or revise any information, financial projections, or other forward-looking statements, whether because of new information, future events, or otherwise. This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles. Reconciliation to the most directly comparable GAAP financial measure may be found in today's earnings release filed with the SEC. I will now turn the call over to Reg.
Reg Cito
Thanks, Ian. Good afternoon, everyone, and thank you for joining us for CADEX's second quarter 2022 earnings call. I'd like to begin by focusing on the following financial, operational, and strategic highlights in Q2. Through strong execution discipline, I want to highlight we have, one, continued to maintain our excellent financial position with over $300 million in cash, no debt, industry-leading gross margins, and with a demonstrated path to profitable growth. Two, return to sequential, mid-single-digit testing services volume growth. Importantly, we have now passed the Nadir and Transplant volumes, which we saw in Q1. And three, we've scaled our collections infrastructure to more efficiently capture the revenue opportunities from the increasing mix of commercial and Medicare Advantage patients. Strategically, we're delivering on our long-term mission and vision. Our vision is to be a leader in the transplant ecosystem and with a long-term goal of connecting one in two transplant patients. AlloCare, our patient app, is a perfect example of that progress where there's been now more than 50,000 downloads pre- and post-transplant patients. And our mission is to improve transplant outcomes by bringing innovative intelligence solutions exemplified by our new artificial intelligence modalities with AI kidney and AI heart. Now onto the first topic, our excellent financial profile. Our board and management team believe that maintaining a strong balance sheet is important to Caredex's success. You may recall that in Q1 of last year, we took advantage of a favorable market conditions to bolster our cash position by raising $188 million through a public stock offering, ensuring that we can be self-funding for the foreseeable future. This is a competitive advantage for KDX in the current market environment, particularly as we have a clear path to profitability. Unlike our peers, we will not have a near-term need to raise capital. And over the longer term, we have the flexibility to deploy capital in a way that we will increase the value for shareholders. We receive very positive feedback from our long-term investors on this. Our path to profitable growth is built on industry-leading gross margin, and we continue to focus on driving efficiencies in our lab and through the benefits of automation and scale. We maintained our adjusted EBITDA margin versus Q1 despite increased costs in a conference-heavy spend quarter. After adjusting for non-recurring legal expenses in Q2, we would be close to break even, similar to Q1. Notably, 12 of our prior 15 quarters were positive adjusted EBITDA. Looking forward, even including non-recurring legal expenses, we are targeting to be adjusted EBITDA positive by the first half of 2023. On to transplant volume and performance. As we predicted last quarter, we were pleased to see an increase in transplant volume in Q2. We hope an increase in hospital starving will lead to even further volume increases in the second half of the year as elective procedures and living organ donation numbers return towards pre-COVID levels. Transplant volume in Q2 grew mid-single digits sequentially, but declined by mid-single digits year over year. As a reminder, last year, Q2 2021 was the highest ever quarter for transplant volume. During Q2 2022, our testing services volume grew roughly 6% sequentially and 20% year-over-year to deliver over 45,000 tests. With these 45,000 tests, we passed a major milestone where CareDX has delivered more than 500,000 patient test results across heart, kidney, and lung patients. We feel encouraged by our Q2 performance in the face of a challenging transplant market, but are also pushing the organization to do even better in the back half of the year. Now looking at CareDx's performance. For the second quarter of 2022, total revenue was $80.6 million, increasing 9% compared to the year-ago quarter, with most of our revenues coming from testing services. For kidney testing services, we continued with our winning formula of adding AlloSure name protocols, adding new centers, and now expanding further into community nephrology. At the end of June, we have more than 90 Allishaw kidney protocols across both centers and in community nephrology. We are starting to see nice progress in community nephrology where we've expanded our field force and had our best ever quarter. We're encouraged by our continued progress in reaching this underserved population. Now onto heart and lung testing services. The heart care attachment rate remains greater than 95%, continuing to highlight the value of multimodality for both patients and physicians. We are pleased to see continued momentum for our shore lung with over 1,400 tests ordered in the quarter and now used in 60% of lung centers. We remain in discussions with CMS over the reimbursement of our shore lung and look forward to helping our patients receive reimbursement for this valuable test. Now on to collections reimbursement. Increasing our rates of collection has been a major priority. We continue to scale our internal billing infrastructure have now added third parties to add extra horsepower because of the influx of new Medicare Advantage and commercial plans. As part of this process, achieving reimbursement coverage is critical. We use the greater than 80% that LMAP payer coverage has achieved as the gold standard, where we are covered by all the major insurers in Medicare. As a reminder, this was a long multi-year process, including conducting long-term studies, completing randomized control studies, and with the goal of incorporating guidelines. we are working towards achieving the similar level of coverage as Alimap Heart in Alishaw Kidney, Alishaw Heart, and Alishaw Lung. This represents a significant upside opportunity. As an example, if tests in 2021 were reimbursed at the same coverage levels as Alimap Heart, then an additional $100 million plus would have been captured in the testing services bottom line. We continue to work closely with payers while investing in producing the evidence required to receive reimbursement. Recently, We're pleased to see dendroisophagin A being considered as part of the next iteration of the ISHLT guidelines. As a reminder, Alimap has already been incorporated in the ISHLT guidelines. On pricing, I want to remind everyone, we do not set the Medicare price. In addition, we target commercial contracts at or above the Medicare rate. And the main driver of fluctuations in ASPs is changes in payer mix. The success of these new launches with Alishaw Heart Alloshore lung and the increased progress on our strategy to expand into the community nephrology with Alloshore kidney has increased the percentage of commercial patients receiving our tests. Now moving on to innovation. On the pipeline, we continue to make progress with Allomap kidney and Euromap. In May, Biomarkers in Medicine published new data demonstrating that Allomap kidney gene expression profiling predicts the probability of allograft rejection for both antibody media rejection and T-cell mediated rejection. This represents the second independent validation of Alimap-Kinney and notably uses multi-center prospective data from OCRA. We're on track with our delivery of Alimap-Kinney as part of our 2022 plan and plan to also start laboratory validation process for Euromap in the second half of this year. Additionally, we're now incorporating artificial intelligence into our testing services portfolio. We believe this represents the next major move within transplant patient care. We announced AI Kidney at ATC, the only donorized cell-free DNA solution that features an additive AI-enabled algorithmic risk assessment tool. AI Kidney will deliver information regarding a patient's current risk of rejection, as well as prognosis of allograft survival at different time points. We've also licensed AI technology for our heart franchises. the first offering being AICAV, that is chronic allograft vasculopathy, highlighted our June Innovation Day. Cetus Sino, one of the leading heart transplant institutions in the United States, has been using this technology in assessing CAV, leading to a reduction in the need for angiograms. Now on to patient and digital solutions and the other parts of the business. This quarter, we recorded 6.8 million in revenue, a year-over-year increase of 178%, driven by our medication management acquisitions and strong performance across the portfolio. Patient and digital solutions are now on par with the products business. As a reminder, we've built this over the last three years and now progressing to critical scale. We have an incredibly deep and efficient transplant mode across 150 plus centers with over 80 plus transplant EMRs and over 50 plus quality and administrative services. This mode has enabled us to expand pre-transplant, and we now have more than 55,000 patient referrals to 60-plus transplant centers and have now gone into the community with the recent introduction of AlloHome, our personalized patient monitoring service. We're focused on playing a critical role connecting patients across the transplant patient journey because this ecosystem remains highly fragmented. As part of this consolidation, our AlloCare app is now integrated with both TS Access and MedAction plans to connect both pre- and post-transplant patients. This patient focus is now enabling us to build our Translant data lake platform known as AI Track and represents a future opportunity to develop more algorithmic-based solutions. This focus on connecting the ecosystem is unique and delivers on our vision of being the leader in Translant. Moving to products, this quarter was reported 6.7 million in revenue, down 2% year-over-year, driven by foreign exchange and supply chain constraints. We were pleased to complete the IVD registration process of our entire lab products portfolio as part of the recent requirements for operating in Europe, and looking to reestablish momentum for this business line as the operating environment normalizes. Cellular transplant therapy is early, but represents an entry into one of the most promising and exciting areas of clinical medicine. In addition to working with pharma partners and LSL partnerships, we signed our very first pharma partnership with Allerheem at the end of Q2. Now moving on to guidance. As you saw in our press release, we lowered our guidance and now expect our full year revenue will be in the range of $325 to $335 million. Abhishek will cover this in more detail in his section. As a transplant company, we made a commitment and a focus on patients. As part of this commitment, we've introduced new offerings, entered new organs, and expanded access to community patients. In the short term, the success of our strategy significantly increased the mix of commercial patients. The lag in reimbursement for these commercial patients has impacted ASP Dynamics. Compounding this has been an increase in complexity in collections due to patients shifting from Medicare to Medicare Advantage. In the longer term, this strong uptake of our offerings provides a longer runway for sustained growth. In closing, I'm proud of our performance in what has been a challenging environment during the first six months of the year. Between COVID, inflation, geopolitical concerns, and macro headwinds, it has been an eventful start to the year for everybody. In transplant, I believe the first half marked an idea for transplant volumes, and I feel confident we'll see continued transplant volume improvement in the second half. We are focused on the near term, the opportunity to realize improved collections as we scale our infrastructure. Mid to long term, we have the opportunity to increase commercial coverage as our mix of commercial patients increases with new launches and expansion of new organs. From a market perspective, there are multiple drivers in place to double the number of transplant volumes being conducted, including through government initiatives, increasing living donors, use of discarded organs, organ perfusion and transport technologies, and the potential of alternative organ supplies like Xenotransplant. Finally, we're proud to being the company that is focused on helping transplant patients by building the connection of products, services, and other offerings across the transplant ecosystem. With that, I'll turn it over to Abhishek.
Ian
Thank you, Raj. We are pleased with the results from the second quarter and I would like to echo the comments about our incredibly deep and efficient mode across the transplant centers and our ability to deliver on our vision of being the leader in the transplant ecosystem. I would like to highlight the following. Strong cash position of $306 million, strong volume growth and impressive gross margin performance. Excluding sequestration, we improved our change in ESP versus Q1 from 4.9% to 3.7% through better collections. our model for profitable growth, where we expect positive adjusted EBITDA by the first half of 2023, even including elevated legal expenses. I want to start by highlighting our financial strength. We ended the quarter with $306 million in cash, cash equivalents, and marketable securities. As we return towards a break-even adjusted EBITDA, we expect future uses of cash to be driven mainly by capital allocation, decisions focused on increasing shareholder value. We are confident that the business is self-funding into the foreseeable future. Moving to the quarter, in Q2, we recorded total revenues of $80.6 million, up 9% compared to $74.2 million in the second quarter of 2021. Testing services revenue grew by 3% to $67.1 million. Product revenues decreased 2% year-over-year to $6.7 million, and digital and patient solutions revenue increased 178% year-over-year to 6.8 million driven by our recent acquisitions of the transplant pharmacy and medication plan. Notably, our testing volumes grew by 20% to approximately 45,000 tests. A quick reminder that our strong testing volume growth came despite a tough comparison from Q to 21. That was an all-time high quarter for transplant volumes. For the quarter, We saw solid sequential growth in all organs. Particularly encouraging is the continued strong uptake of our Elloshore lung where the volumes grew to over 1,400 tests for the quarter and greater than 95% attach rate for Elloshore heart. The known gap gross margin for the quarter was 68.8% compared to 70.3% in the second quarter of last year and 67.9% in Q1. We continue to maintain healthy gross margins of over 74% in our testing services business, despite strong adoption of our new test that drives the mix shift between the tests that are reimbursed versus not reimbursed. We are very pleased with the durability of our gross margin profile and proud of our lab and supply chain teams as they continue to drive efficiencies. Non-gap operating expenses for the second quarter were $62.4 million, up about $2 million sequentially from Q122. The increase in our operating expenses was driven by sales and marketing expenses in a conference-heavy quarter. We remain disciplined with our spend and plan to keep operating expenses flattish in the second half. For the second quarter of 22, we recorded negative adjusted EBITDA of 5.7 million compared to negative adjusted EBITDA of 5.6 million in the previous quarter. As Raj mentioned, we are targeting to be adjusted EBITDA positive in the first half of 2023 and are confident in our ability to continue to drive profitable growth. Now, I would like to add some color on the factors driving our ASP change in the quarter and our assumptions for the second half of the year to help investors better understand the mixed shift in the business. Firstly, there's a mandatory Medicare sequestration impact on ASP of 1% in Q2. Excluding this, the ASP change of 3.7% improved about 110 basis points over the last quarter. As we had discussed in our last call, ASP impact is a result of first driving our strategy to expand into higher commercial mix of patients driven by our new launches and our expansion into community nephrology. The second part of ASP impact is due to increased complexity in collections due to the patients shifting from Medicare to Medicare Advantage. To provide further clarity, our strategy to serve patients along the entire patient journey, has meant a marked increase in the mix of patients on commercial pay. Given this leadership strategy, 75% of the change in ASP was driven by incremental volumes of commercial payers and Ella Shoreline. The other 25% of the change in ASP was driven by the shift of Medicare to Medicare Advantage patients. Our ASP assumption for the full year now includes a mid-teens impact based on the factors as we discussed above. We have increased our focus on the reimbursement strategy to capture this significant opportunity over the mid to long term. In addition, we are scaling our collections infrastructure to comply with increased administrative steps. Regarding the information requests from the government, we do not have any material updates to report. We continue to cooperate and are moving expeditiously in responding to the requests. Turning to guidance, we are revising our full-year guidance in the range of $325 million to $335 million from $330 million to $350 million previously. This change in midpoint from $340 million to $330 million is primarily driven by revised ASP assumptions due to higher mix of commercial patients, including growth in our yellow-shored lung test and shift of Medicare to Medicare Advantage patients. Our belief is that the industry has hit the nadir of transplant volumes and will see improvements as staffing shortages dissipate in the back half of the year. Our business model and a solid cash position is a competitive advantage for KDX as it places us in a position of strength. We have a large untapped opportunity to drive sustainable profitability through increased reimbursement coverage, have great products, and a promising pipeline. With that, I'll open the call for questions.
Operator
And if you would like to ask a question, please press star 1 at this time. And that is star 1 if you would like to ask a question. And our first question will come from Andrew Cooper with Raymond James.
Andrew Cooper
Hey, everybody.
Andrew
Thanks for the questions. You know, maybe just first, I want to get a sense for, can you just tell us where specifically on transplant volumes today you think the mix is in terms of Medicare, Medicare Advantage, and true commercial? And then to some degree, you know, talk us through what your actual volumes look like on each of that, at least directionally. And then lastly, you know, Why has that been something that's been difficult for you to predict? It sounds like the guide change is really tied to that mix dynamic, and so I just want to understand, you know, what's changed relative to your expectations prior, and maybe what have you learned since, you know, this time last year that informs sort of what the mix might look like going forward?
Reg Cito
Yeah, thanks, Andrew. It's Reggie. Thanks for the question, and, you know, we're excited by this quarter, and we had a strong you know, quarter in volume growth. And I think, you know, in terms of as we look at this volume progression and the mix, what's clear is that, you know, we continue to see a significant increase in our commercial percent of total patient volume. And that's because of the strategy we instituted, you know, bringing new launches such as AlloShore Lung, AlloShore Heart, and now expanding community for all these really added, you know, a series of patients who historically have not started with reimbursement and where we've had to earn and build that coverage. And so, If you look at the evolution of that, what you can see is that the greatest increase or change has been in our commercial percentage, which used to be, you know, under 50%, but now is above 50% in terms of the commercial patients. And we've seen this mix continue where, you know, commercials continue to increase. So probably, you know, the start of this time last year was around the 47% range, and now we're about 53%. So about a 6% delta change that we've seen On the Medicare side, we're seeing that decline by about the same amount, and the rest of that made up through Medicare Advantage, through that mix. So, as you can see, quite a bit of dynamic shift that's taking place.
Andrew
Okay, great. That's helpful. And then maybe kind of sticking to similar topics, but just conversations with payers, and you continue to build that. the data sets out there continue to build the clinical evidence. So, you know, any updates you can give us on conversations with some of those commercial payers to make sure you get paid on Medicare Advantage as well.
Reg Cito
Yeah, absolutely. I mean, this is a process. And the good thing about – this is why I mentioned LMA part is the gold standard. I mean, there you have every national payer of the five, and there you have, you know, most of the major regionals as well. And you have, you know, coverage. We used 80 percent as a reference, but it's well in excess of 80 percent. And so, That standard was sent over a period of time, multi-stage process, which began with excellent studies including being published in New England, included long-term studies, included randomized control studies, included also getting the guidelines. And so as we have seen from our approach across these new offerings, we've done the same, right, which is doing excellent studies, multi-center prospective in excellent journals. The next thing is doing the long-term studies. And now we've also started the randomized control studies both in heart and kidneys. And the goal, ultimately, is to get incorporating guidelines. As you can see from last quarter and also this quarter, we mentioned that the donor-derived sulfonate, that is Alloshore, is being considered as part of the next iteration of ISHLT. So it is a process. It's one where, you know, for those of me at the payer space, you have annual conversations with the majors, but you can also have ad hoc discussions, which we continue to have as well. But it really is a process, but it's one that is precedented. This isn't a mystery because, you know, we've seen this with... with Alimap, and I think it's a process now we're applying into Alishaw heart, into Alishaw lung, and obviously into Alishaw kidney.
Andrew Cooper
Great. I've got plenty else I could ask, but I'll stop and hop back in the queue. Thanks. Thanks again.
Operator
We'll take our next question from Alex Nowak with Craig Hallam Capital Group.
Alex Nowak
Great. Good afternoon, everyone. I wanted to follow up on the ASP comments here and hope to clarify. There's obviously the newer tests out there in heart and lung that has a higher mix of commercial when looking at year and year that obviously leads to less coverage there than Medicare. But then I'm curious why the ASP declined quarter on quarter. Shouldn't you start to lapse that amount here at some point as if you look at test volumes from going from Q1 to Q2, isn't commercial test volumes pretty consistent from those two quarters? So I guess I'm trying to figure out what specifically led to a sequential decline in price, let's say specifically for Q2.
Reg Cito
Yeah, I'll give some comments and let Abhishek go more detail. I think firstly, there was a new mandatory change, which is part of sequestration, which was the 1%, which I think was mentioned by Abhishek. And I think then we broke it up into what was commercial and Medicare. And what you can see is there actually was a larger increase in the commercial mix of these patients between Q1 and Q2. So I don't know, Abhishek, if you want to add some more commentary there.
Ian
No, thank you, Raj. You have covered most part of it. But the key here is that when we start to look at the commercial side, so increased volume, most of that was driven by the payers and the tests on the commercial side. And as I mentioned, it was about 75% of our ASP change. And it's primarily driven by our strategy here because as we continue to move into community nephrology, so we're getting more volume in that space. And similarly on the yellow-shored lung, since we actually provide that number separately, you can see the yellow-shored lung actually increased over 50%. So those are the two factors that are driving almost like 3% of your ASP change. and then the rest comes from the Medicare sequestration, and a small part is coming from the collections.
Alex Nowak
Okay, that is helpful. When we are thinking about the growth that is embedded into the new guidance, can you just remind us first how much acquisitions were added to sales in 2022, and then what does the guide assume here for growth and testing volumes? It looks like if you take the guidance and It almost implies a flat growth for the second half compared to the first half. So I'm just trying to understand the volume trends in there.
Ian
Yes, sure. So first of all, just to make sure that I get your questions fully right here. So when I look at the guidance, the guidance change is coming primarily as we look into our ASP as of where we are today. So we are now assuming that this mixed shift will continue in the second half of the year, and that's the reason we are revising the ASP assumptions that we had around the high single digits to the mid-teens now. And that is shifting the midpoint of the guidance from the previous $340 million to the new midpoint guidance of the $330 million. Now, I would only add that there has not been any change in our assumptions as it related to the volume and the other.
Reg Cito
The high, medium, and low growth rate assumptions were the same. I think what we're communicating here is the change in the
Brandon Quilliard
Okay, I think you guys broke up on my end, but we can follow up offline. Thanks.
Andrew Cooper
Sorry, the phone just cut out. Can you repeat the question? Hello? Hello? Hello? Hello? We can't hear you. Hello, did Alex drop out or is the speaker out?
Operator
Alex, are you still on the line?
Andrew Cooper
Yeah, I'm getting a text message. The phone line cut out, so I don't know if you can hear us.
Operator
This is the operator. I am able to hear you on my end.
Reg Cito
Okay, great. Well, I don't know if Alex dropped out, but we couldn't hear his question.
Operator
Alex, are you still on the line? Your line is still open.
Andrew Cooper
Yeah, maybe we can come back to Alex.
Reg Cito
We don't hear him. Maybe we go to whoever's next. We can come back to Alex when he rejoins.
Operator
Yes, we'll take our next question from Brandon Quilliard with Jeffrey's.
Brandon Quilliard
Hey, thanks. Good afternoon.
spk10
Abhishek, just in terms of the phasing of the back half of the year, should we assume that ASPs step down sequentially in both the third and fourth quarter? And I know this may be a little preliminary, but would it be your initial view that this mixed shift begins to actually stabilize as we move into 23, or do you think it's likely to continue, but perhaps at a slower rate?
Ian
Sure. So, Brendan, this is a great question. So, as I look into the second half of the year, my ASP assumptions are pretty much how we are seeing the trends as of right now. So, what we are assuming that are the makeshift that we have seen so far, this will continue in the next half of the year. So, that's the first piece. The second piece is around the Medicare sequestration. So, as you know, that Medicare sequestration cut will go up to 2% in Q3. So it will have the same impact the way it had in the current quarter, but it will go away in Q4. So that's the second part. So those are the two pieces that we are assuming. But other than that, it will continue, at least from our midpoint assumption standpoint, in the same way for the second half of the year. Gotcha.
Reg Cito
Okay. And as far as... 23, we haven't guided yet, but just, I mean, in terms of that commentary, I think What you can see is the sequestration will go away, but also as we build more commercial, the largest piece, three quarters, is coming from commercial. So as we work on commercial contracts, as we look at reimbursement for Alshulung, part of this will reverse and also when event multimodality, for example, comes through. So what this assumes is that progression, but what it doesn't factor in is during 2023 is then building in these additional contracts as they come through and then also the improved collections. So I just wanted to add that as well, although we're not guiding 2023, just to show that there will be improvements.
spk10
Gotcha. Well, I mean, you kind of are talking about 2023 in terms of pointing to positive adjusted EBITDA by the first half. I mean, just in general, like why give that target right now? And what's the key driver of that shift to profitability? Is it stronger top line growth or actually a moderation in OPEX spending, as you kind of indicated would be the case for the second half?
Reg Cito
Yeah, Brandon, we thought it was important to, you know, as we, again, spoke to our investors and our long-term investors, it's understanding that we have a really good business model, but also this path to profitability. And I think using just the EBITDA as the proxy. And so, as we've mentioned in the call, we've had 12 of the 15 in the past. And what we've incurred in the last few quarters is this incremental non-recurring spend, which will eventually go away. But say, for example, legal expenses. So, you know, if we assume that this year that's $5 million a quarter or $20 million a quarter, For example, we've had to absorb that. And so what we want to say as we go into the 2023 is that we have an operational model, including OPEX, including top line growth, that will absorb that. And then we'll move back into this positive justice EBITDA. So that's the three assurance we want to provide. And again, just a reminder, you know, we know our model well. And I think what we're trying to do here is to say that, you know, we'll return to that after absorbing these incremental non-recurring costs, for example, in MIGL.
Brandon Quilliard
Gotcha. Okay.
spk10
Last question, just on kidney care, any chance you could be more specific as far as the timeline for Moldex submission and what are the next milestones, you know, towards commercializing that test? Thanks.
Reg Cito
Yeah, no, I think we feel really good about Alabama Kidney. We obviously completed our second independent validation study. We've completed our clear validation. I mean, the process will, as we mentioned, the second half of the year will be with Moldex. And As part of that, you know, the field team have, you know, started part of their training as part of their process, just as good, you know, part of, you know, education before any major launch. But I think, you know, we feel good about the progress in our map kidney. We also mentioned Euromap. Euromap is also a test. We'll start clear validation as well in the second half of this year as well. So, you know, both, you know, exciting opportunities for the organization, particularly in the kidney space.
Andrew Cooper
Great. Thank you. Thanks again.
Operator
We will take our next question from Mason Tarico with Stevens.
Stevens
Hey, guys. It's Jacob on for Mason. Thanks for taking the questions today. So on the Medicare to Medicare Advantage switch in patients, I know you guys talked on the call a little bit about building out the infrastructure for combating kind of this negative impact that's kind of been a big part of the ASP headwind. Just, you know, could you maybe talk about the infrastructure you guys are building out there and maybe any metrics you could point to that shows collection rates are going to start improving? Thanks.
Reg Cito
Yeah, no, I can describe the infrastructure, but I think also with what Abhishek described as well with, you know, 75% being, you know, the commercial and, you know, 25% being on the Medicare to make advantage shift that was obviously a much higher shift in Medicare make advantage in prior quarters so you can see that actually there has been some improvements on the collection side as well as part of that and excluding sequestration it was actually three point seven percent so an improvement versus q1 that said the infrastructure that we've put in place during the first half year in which we continue to amplify now resolves around three things one is people the second is process and the third is looking at, you know, third parties. And so, as you heard during the call, we've now engaged third parties helping us during the process. And we've obviously increased the number of people. Just as a point of edification for those on the phone, you know, when you submit for Medicare, it's fairly easy. You put the paperwork and submit in. When you go for Medicare Advantage or when you go for any commercial plans, it's different, right? You have different, you know, administrative needs, such as, you know, different, you know, medical information you need to provide. There's often a prior work required. There's often, like, for example, appeal process, et cetera. So, again, this has required, you know, more people because it's a longer process as part of that. And then, secondly, and thirdly, just, you know, building out the process that we have in the organization as we shift more to commercial plans as well. So, again, this process has a front end, has a mission process and a back end, and here we're scaled up in people and also with third-party support.
Stevens
Great. Thanks. And then moving on to the next one, could you just maybe provide an update for us on the inclusion of donor-derived cell-free DNA in the ISHLT guidelines? Maybe just talk about the impact the inclusion would have from a timeline perspective on expanding commercial coverage for Alisher Heart.
Reg Cito
Yeah, I think getting incorporated in any national guidelines, particularly ISHLT, is a pivotal moment. In terms of the timing, we wouldn't be able to comment on that because that's developed by the committees and subcommittees, and it was shared as part of the presentation. It's a draft guideline, so we assume that process is ongoing. So we'd love to comment on that, but we actually don't because we don't run those committees. But in terms of the impact, it would change part of the dialogue and discussion that we would then have with the commercial payers because it is seen as a fairly good validation proof point. We saw that with, obviously, Alamap as well, and it was instrumental in helping us to engage payers as well in those discussions. I'd say it's a fairly important proof point and one that could create a bit of an inflection point.
Stevens
All right. Thanks. That's it for me. Thanks, guys.
Andrew Cooper
Thank you.
Operator
As a reminder, if you would like to ask a question, please press star 1 at this time. Again, that is star 1 for questions. We'll take our next question.
spk08
Hi, thank you for taking my questions. In the prepared remarks, you mentioned that the relatively low volume of transplant is a result of a shortage in staff. Could you comment on what created the shortage of staff?
Reg Cito
Yeah, the shortages you've seen across the healthcare network is pretty well documented. I think, you know, during the process of COVID, there was a lot of staff who were firstly leaving roles and going to other institutions. It became this whole traveling nurse concept. And so there was staffing shortages as a result of that. Secondly, there were people who were leaving nursing roles and other roles as part of that during the course of COVID. And so it left those roles firmly. Those two have been pretty significant, pivotal creations of staffing shortages across the hospital landscape and is left to various institutions actually being short in this Where this has really played a role, though, is when we saw during Q3 in 2020 during COVID that there were a lot of elective procedures being done on weekends, for example, play catch-up as part of living donor transplants. And so even if there is a desire to do more, for example, in transplants, you're not seeing that same sort of willingness or availability, for example, to schedule ORs out of hours or to schedule on weekends, for example. So it has been something that still exists. And living donors have not returned back to pre-COVID levels.
spk08
But what evidence have you observed to make you believe that the situation could improve in the second half?
Reg Cito
Yeah, I think for staffing shortages, it's harder for us to say that, you know, centres will, you know, be able to recover. But I think, you know, general as a whole in what we're seeing across the landscape is there has been, you know, an acceptance of, COVID, there's also been acceptance of, you know, people now trying to get back more of a sense of normalcy. So on the first factor, the traveling nurses, you'll see a bit of a trend shift there as well, where the actual payment rates and, you know, the desire to keep on moving around will probably change with payments coming down to that. So there'll be quite a difference. The second is you'll probably see less of the attrition of people wanting to retire because that has already happened. So I think it's now really dependent on more folks coming back into the into those situations, but also there being lower attrition. It's harder for us to make a macro comment of the entire United States.
spk08
Okay. So the federal government just declared monkeypox as a public health emergency, which aims to speed up new vaccine distribution. Do you think that could possibly create another round of staff shortages?
Reg Cito
Yes, I'm not too sure with that question. I think, you know, I think, you know, monkeypox is, you know, an area that's still fairly early. I think it's one where, you know, I'm probably not the expert to comment on in that area. I don't believe it's airborne, but probably, you know, again, if I relate back to thinking of, you know, staffing shortage, if that's your primary question. It's really about I think now you'll see more of the return to the status quo hopefully for Q2 – sorry, Q3 and Q4. Okay.
Andrew Cooper
Thank you.
Operator
We'll go to our next question from Evie Koslowski with Goldman Sachs.
spk02
Hi. Thanks for the questions. So it's great to see transplant volumes recovering sequentially. Could you give us a bit more color around trends you've been seeing so far in July?
Reg Cito
Yeah, the trends in July, and these are weekly versus monthly, so what we presented earlier were the monthly dates, which are more complete data sets. But on the weekly trends in July, which are directionally, it seems to be very similar to what we saw in June. No, no, no, not a, not an influx rate, so mid-single digits.
spk02
Okay, great. That's helpful. And then despite being up sequentially, we're still down versus last year, but obviously you've proven for the last few quarters you've been able to still grow testing volumes, even when transplant volumes are down. Could you talk through what would happen if transplant volumes take longer to get back to last year's levels?
Reg Cito
Yeah, I think for us, we've seen the nadir in Q1, and we predicted that. I think that's played out in Q2 with a nice rebound or recovery sequentially, but also year over year. I think given the comparator of Q2 2021 being the peak point, I think we'll probably see year over year improvements in Q3 and Q4. I think sequentially, some of the drivers which we may see improvement will be driven by the you know, living donor population, which is still below where it was pre-COVID, helping to assist with transplant volumes. And let's not forget on the heart side as well, we talked a bit about kidney, but there are other forms of drivers which are leading to an increase in volume. For example, we've seen the DCDs versus DVD, you know, patient hearts being used as well. So overall, I think, you know, the ability of this market to come back long-term is very strong, and I think we'll hopefully see the start of that in the second half of the year.
Andrew Cooper
Okay, that's helpful. Thank you. You're welcome.
Operator
If there are no further questions at this time, I'll turn the call back to Reg for any additional or closing remarks.
Reg Cito
Yeah, no, absolutely. Well, look, I want to thank all the investors, analysts, shareholders for being on today. You know, it's been a you know, a tough six months, I think, for many companies and operations and organizations. I think, you know, for us, we're really excited by the momentum that's come out of Q2 and I think what we can do in the second half of the year. And, you know, we just, at the end of the day, thank each and every one of you for supporting transplant. It's such a unique space and these patients really need support and we're proud to be 100% focused on transplant. So thank you again for your support and commitment and we look forward to follow-up discussions with each and every one of you. Thank you.
Operator
Thank you for your participation. You may now disconnect.
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